And now that they aren’t getting it in developed economies, whether they’re looking at industrials, consumer retail, or other sectors, they’re turning their attention south and east – to the BRIC countries and other emerging markets.

We’ve been through what to expect in China and India multiple times (Russia, you’re next on the list), but Brazil hasn’t received much attention.

Actually, I’ll correct that statement: Latin America has received no attention so far.

That changes today with an interview from a reader who started out in risk management in Latin America and then networked his way into investment banking to cover Latin America at a New York-based investment bank.

Keep reading to learn how you can do the same, what it takes to cover Latin America, and how everything from valuations to pitch books differs – plus, whether it’s an emerging power or just an emerging bubble.

Breaking In

Q: For starters, could you tell us a bit about your background and how you got started in your group?

A: Sure. My family is originally from Latin America: half from Argentina and half from Brazil. I went to school in Argentina, studied commerce, and right out of school I worked at one of the Latin American banks (ex: Itaú, BBVA, Banco Bradesco, Banco do Brazil, to name a few).

As an MBA student I studied at Stanford, and after meeting the right people, I started my investment banking career for one of the bulge bracket firms in Manhattan.

Q: What do you mean by the “right people”? It sounds like you already had quite an advantage considering you’re half-Brazilian and half-Argentinian…

A: I applied the usual networking tactics: finding people through alumni databases, reaching out and staying in touch and so on.

But I always tried to make myself a resource to the other person and help them as much as I possibly could.

So rather than just ask for introductions, I would offer to introduce my contacts to people I had met or tell them about my experience working in Latin America.

Q: Right, that’s a good strategy if you have enough contacts and work experience to be useful.

But I thought you started out in risk management initially – how’d you make the switch into investment banking?

A: You’ll learn something with any experience you have, whether it’s stuffing bears for the student store, pitching a stock, or even dishwashing.

And you can pick up bits and pieces of these learnings and combine them into something transferable.

With risk management specifically, you need to model something abstract into concrete terms (Excel work), present your findings or conclusion (pitch book work), and of course learn how things are done (let’s call this “product work”).

So it’s all about how you present the experience – play up the modeling aspect, how you had to sell others on your ideas, and work effectively in a team.

If someone insists that there are more differences than similarities, just downplay the numerous minute differences and play up the few major, positive items that work in your favor.

Q: That makes sense, but let’s jump back to the dishwashing part.

Did you just mention that randomly, or is there a way to spin even something like that experience in a positive way?

A: Of course there is.

Let’s say you’re a dishwasher for a café. You’ll need to multi-task all the time and make sure all of your plates/cups/silverware are ready before they’re needed.

At an investment bank, you’ll be tasked with competing assignments, and of course, these assignments need to be completed before your VP or MD needs them since there are always changes in direction, edits, pages in or pages out.

Obviously it’s better if you’ve had more relevant experience, but don’t discount yourself just because you’ve had part-time service jobs in the past.

Team Latin America

Q: I’m still not convinced that I’d bring up dishwashing in an interview, but you do make a great point there.

Shifting gears, could you tell us more about your team? I’m assuming most people are also from Latin America and know the language(s)?

A: La primera cosa que debo decirte, es que es muy importante para los financieros que ellos hablan español para trabajar con companias en Latino America. (The first thing that I should tell you is that it’s very important for financiers to speak Spanish in order to work with companies in Latin America)

Different sectors become more active in debt offerings at various times; you might see a very active year for banks, then little activity, but a lot more activity for natural resource companies, for example.

Latin America Analysis

Q: So how does the valuation in those sectors differ?

Is it more dependent on the industries or the region?

A: It’s different because you need to think about sovereign risk. An election can change the cost of raising capital; a string of protests might cause the dial to shift slightly as well.

You’d make these adjustments when calculating the cost of capital (at least, that’s how it’s taught in business school).

If the IMF (NB: the International Monetary Fund, not the Impossible Mission Force) has to inject capital into a nation, or if a Latin American nation is injecting capital into another Latin American nation then you’ll also need to consider those items in your framework.

The valuation work is not incredibly different: you see the same methodologies, such as DCF, trading comparables, etc.

Q: So the valuation methodologies themselves are similar, but you might tweak certain items depending on the country and economic environment.

Is there anything else that makes valuing Latin American companies more difficult than valuing US companies?

A: A couple of the key challenges:

1) Lack of true comparables in some spaces both from a precedent transaction and public market perspective.

On the consumer retail front, one time I saw a valuation for a restaurant company driven off financial institutions comparables.

That would make no sense in the US or Europe, but here it worked because they didn’t have comparable restaurants and because of the source of revenue: finance professionals were the chief clientele for this particular chain.

2) Some companies in Latin America have substantial operations in other countries. In this case, a sum-of-the-parts valuation is required.

This process is complicated by the way divisions may be structured (think of one division split between two offices) and by corporate overhead.

You’d just have to get creative for something like this and make solid estimates

3) The level of disclosure by companies is often poorer given the emerging market setting so that’s another important valuation constraint.

You’ll just have to do more digging around, looking up articles, and otherwise turning into a detective to get a better perspective on a company’s operations.

In such cases, the firms won’t necessarily disclose key items like customer concentration, employees by division, revenue by segment and so on.

Q: Right, it’s almost like valuing private companies in developed markets: minimal information and lots of guesstimates required.

What about qualitative analysis of sectors in Latin America? Any important points to keep in mind there?

A: Sure. A few points that come to mind:

Government Policy Implications: Many nations in Latin America are very protective of their strategic assets.

A “strategic asset” in the United States might be a communication system used by a majority of airlines (ex: Aeronautical Ratio, or ARINC), whereas in Latin America, a “strategic asset” might be a large oil/gas project.

The rules governing cross-border investments will impact whether the deal has additional hurdles to clear.

Interdependence: Unlike the US consumer retail sector, which generates the lion’s share of revenues from within the US itself, companies in Latin America earn a higher percentage of revenue from other countries.

You might see copper contracts from Chile signed by China, or corn ethanol produced by Brazil and imported to the United States.

Cultural Differences: Black, Red, White, Brown, Yellow, Green (Army), or Blue (Smurfs!) – we’re all human. We all have a basic set of requirements such as food, shelter, and connectivity.

In Latin America, there’s a stronger sense of interdependence in families: if you ever see a family reunion you can expect to see many generations there.

Moving back in with your parents happens more often than not, which means that consumer spending is also much different.

A large household size means that there’s more demand for basic goods or consumer staples, which changes what companies are valuable and which divisions are the most valuable.

You can also apply this thought paradigm when analyzing the US Hispanic Market: If you’re in San Francisco, Los Angeles, and most parts of Texas, you can see domestic firms expanding their offerings to better resonate with the local populace.

A prime example was Nestlé’s introduction of Aguas Frescas, which includes Tamarindo, Horchata, and Jamaica.

Monetary / Fiscal Policy: Any cross-border analysis needs to take into account interest rate levels and any contracts used to lock in those rates.

This aspect involves a lot of international finance, so it’s a good idea to take that class if you’re interested in working in Latin America in the future.

Q: Thanks – that’s great! I hadn’t thought through the implications of those cultural differences on product demand and company valuations, but your explanation makes perfect sense.

A: It’s hard to say definitively because while there is a lot of hype over emerging markets, they are also growing much faster than other economies.

I don’t necessarily think it will come crashing down like the dot-com or real estate bubble, but valuation multiples will probably decline over time as the hype subsides.

As prices rise the comparable companies also get a boost, and you may see significantly different ranges for precedent transaction multiples depending on the dates.

You might need to adjust for that in modeling and valuation work, especially if you’re also working with companies in “non-inflated” regions.

Q: Right, that makes sense. How do all these policy and cultural differences affect the sector pages in Latin America coverage materials?

Do you focus moreon a sector (say: regional jets for Embraer), or are the pages more about LatAm policy decisions?

A: It depends on the market and the country. If you’re dealing with countries with more unstable political atmospheres, you’ll likely dedicate pages to policy issues.

And some sectors, such as mining, also have important ties to policy; you may even see some industries where policy itself is driving a lot of growth. One example is how social welfare programs in Brazil have driven demand for consumer goods there.

You’ll usually spend some time discussing the sectors on a global scale or “developed market” scale before getting into specifics on a regional basis.

And you’ll usually end up discussing items on country-by-country basis, given how different the dynamics are in each of the countries.

Finally, you’ll often try to rope in a “big-picture sell” that connects to what’s happening in the rest of the world.

For example, in the oil and gas pitches we emphasize the state-sponsored investment from Asia that had arisen in recent years since that was a major shift in the space that affected companies in Latin America.

About the Author

Luis Miguel Ochoa has worked in investment banking (industrials) and strategic planning. He graduated from Stanford and wrote many of the best articles on this site on different industry and product groups in banking.

I am currently in Brazil and just received an offer to join Citi’s IBD team here, however I am not sure if its the right choice long term. As I am originally from Europe I would either like to transition back there eventually or to NY and would not want to be stuck at a Latam desk forever. I would appreciate your inputs on that.

It depends on your previous experience… if you’ve already worked in other regions, you can transition to Europe or NY more easily. If you’re just starting out, you can work in Brazil for a bit but you should try to transfer relatively soon (maybe 1 year after you start working) or you may get stuck there.

I’ve already secured an IBD internship with UBS in London (where I’m from) and I’ve been offered a place in LATAM FIG in Manhattan with Credit Suisse (I’m a heritage speaker of Portuguese and Spanish, that’s how I got it). My ultimate goal is to make the jump to Private Equity.

Which one do you recommend that I go for (I don’t really mind the location, just want to go for what’s gonna be best for my future job opps. in PE)?

It depends. If you are interested in the LATAM markets, FIG maybe a great way for you to break into PE down the line. I personally think IBD is a better option because it is broader and gives you a more diverse experience. However, it also depends on where you want to work after your internship. If you want to work in NY, CS maybe a better option.

Most analysts go to Latin America-based funds, or perhaps to an industry-specific fund that overlaps with the industry they covered the most. I think exit opportunities are fairly good, though you almost certainly have to go there in-person for the best local funds – for a good account of PE in LatAm, see: http://www.mergersandinquisitions.com/private-equity-latin-america/

How easy is it to lateral into LatAm IBD from LatAm DCM? I’m facing a decision between attending an M7 school (with a scholarship) with the objective of joining the LatAm IBD team at a BB afterwards, or accepting an associate offer for LatAm DCM at a BB to start now. My worry is being pidgeonholed in DCM, since that is not what I want to do since that is not what I want to do, and I would only consider the DCM LatAm offer as a way to get my foot in the door of a BB while looking to lateral to its LatAm IBD team.

If you already have an offer at the LatAM IBD team (after graduation) then I’d go for that option. However, from the sounds of your comment, I think only your DCM offer is secure. In that case, I’d probably take that offer and lateral after, unless you’re sure you can get an M&A role at a BB after school and that you absolutely do not want to do DCM.

The sure thing is an M7 acceptance with a scholarship. The DCM LatAm is not a sure thing, but I’m assuming that, if an offer materializes, I would have to make a decision very quickly.

You’re right in that I don’t have an offer for LatAm IBD after graduation right now (but I might, since I was sought out for this role – I didn’t apply for it – I’d like to think my chances might be good). What I’m pondering is, since the school I’m going to has a heavy LatAm presence, if the relationships I develop while there will be sufficiently beneficial to have a more successful banking career (once I have to start generating revenue) as opposed to joining a BB now and not have that network to tap into when I have to start generating revenue.

If I get the offer, you say I should take the offer and lateral – my question is how feasible is lateraling from DCM into other groups, and how long could that take? (taking into account I would be hired at the associate level)

If you get the offer yes I’d take it and lateral. It is feasible assuming you’re a strong candidate and have established solid connections. How long it takes depending on the individual to be honest; say 2-3 years or sometimes longer

I am wanting to start a language course shortly and have the option of choosing ‘Spanish’ or ‘Brazilian Portuguese’ . I aspire to get into IB (possibly with some focus on the Oil and Gas sector). I am in a dillema as to which one I should choose. Its a significant investment of time and like everyone else, I guess I want to ensure I get maximum ROI. I guess I would want to work in Brazil and as such Portuguese could be a better option, but I fear its acceptability would be lower than Spanish. I am presuming the IBs in Brazil would have to work closely with those in other South American countries and as such Spanish could be a broader/safer option. Am I correct in arriving at this deduction? Any thoughts would be hugely appreciated.

Not really sure on that one but most bulge brackets there have good PE exit opps. The trend lately is for more and more of the teams to work directly in Latin America so you should probably go with a bank that still focuses more on NY.

First, this is a great article so thanks for putting this together. I have two quick questions. I was wondering which bank you think is stronger in LatAm for IB between Citi and BofAML. Specifically with regards to their teams based out of NYC just covering the region. Second I was wondering what the exit opps to PE would be. I would appreciate any insight that you have.

Maybe slightly off topic, but how is the selection process for banks actually in Brazil? Do you have any idea how they take to foreigners? I speak the language pretty well (working on that), and I can legally work there, but my experience is limited to my ongoing internship in business valuation at a regional accounting firm in the US. I have a family situation that might necessitate my move to Rio. I love what I’m doing here, so I wouldn’t leave unless I really had to. Thanks for any advice you can give me.

Thank you for such an insightful article. Coming from an emerging market background, I have a question with regard to valuation. How do banks actually take into account the sovereign risk? Do they just add a sovereign risk premium to the CAPM (cost of equity) just like what is described in CFA or they do it in a more comprehensive and complicated way?

Also do all the points regarding differences in valuation apply to other emerging economies such as Russia and Africa?

that doesn’t answer my question. I picked up this valuation book and apparently you can value a company on a historical basis (capitalized economic income) projections (d c f) asset approach, which values the company if it were to liquidate its assets as opposed to a going concern. And market comps. Do I need to only concern myself with market comp and d c f? Also the book investmentnbanking only covers d c f

A very good day to you.
i am a Cameroonian Student, Currently studying Mathematical Finance in South Africa (Second Year), and i want to work for an investment Bank after my Studies. Could you please advised me on what to do to get experience while studying. More over, what are the different options that i will have after my Degree related to investment banking.
Thanks.

That’s great that you can read. I’m sure you learned some good stuff. It’s important to be able to apply what you’ve learned from something like this as I mentioned in the interview. You might bring it up during your own interview as evidence of your interest in the region, culture, etc…

I was born in brazil and came to the uk when I was young aspiring to get into sales/private banking. Is there a particular place, association that it is easier it is to network with fellow Latin anericans in finance. I saw the end note saying you do charity work with the association of Latium financiers, is there a group in London. Ps speak fluent portiguesse and spanish

I am a german student at a local target university with the goal to break into LatAm finance. I have been to Latin America quite a few times in the past and I am fluent in Spanish and Portuguese with experience in IB (German Mid-Cap M&A). Next semester I will go to study a semester abroad in Brazil (target university). I want to use that move to break into Investment Banking over there. However, I currently don’t know what would be the best option for me. Is it realistic to get an internship in Brazil, once I get there and make local contacts ? Or would I be better off by getting an internship/job at a BB in Frankfurt/London and move over to a LatAm team later ?

The LatAm team I spoke of is within an investment bank not located in Latin America. The bank is located in New York. Following MMM’s thoughts, at least in New York, there is a Latin America IB office, with coverage for particular parts of Latin America. There are also offices within the various regions that cover firms locally.

To your question, it’s better to get contacts where you have previous contacts and an advantage. I would choose the path that appears easier to you. Since you’re already in Europe, I would get an internship there and make a transition into a dedicated LatAm group once you’ve earned your stripes.

1) To my knowledge, LatAm i-banking groups do not exist in London, at least not in BBs or major boutiques. It is possible that some banks have salespeople or traders based in London that cover LatAm, or private bankers covering the region out of Switzerland, but that’s about it.
2) As mentioned above, these groups actively recruit both undergrads and MBAs. Some banks place you in these groups once you get a general offer, while others (such as CS or Citi) have a separate recruiting process (though they still go on-campus).
3) For NYC-based groups, your hours will be just as bad as other groups. For groups or rep offices based in places like Mexico, Sao Paulo or Buenos Aires, it depends… though the places with good dealflow will work you hard.

One final note – LatAm is no longer covered entirely by one single group or office. Most banks (perhaps with the exception of JPM and Barclays) cover Brazil locally, meaning the SP-based teams are large and originate/execute locally (though of course they get help from industry/product groups from NYC, etc.). The rest of the region is covered out of NYC (w/ the exception of Goldman, which no longer has a NYC-based Latam group to my knowledge), with rep offices based in places like Argentina, Colombia, Peru, Chile and Mexico. I believe some banks give their Mexican teams automony, given the size of the market there, but I’m not well-versed on the Mexican market.

Also forgot to mention – UBS recently dismantled its Latin America group in NYC as well. I also heard BAML was thinking of doing the same, but I’m not sure if they ever did.

As far as the major independent advisory firms go (Lazard, Rothschild, Evercore, etc.), many of them have a local presence in LatAm but do not cover the region out of NYC (though Lazard did before its IPO).

How would you leverage your language skills (Spanish) in an interview and how’s the best way to handle “You completed Level I of the CFA, does that mean you want to go to a hedge fund afterwards?” Thanks

Also, unless you are going for an internal transfer never underestimate the value language skills. In many countries ex-pats are retyrning home with considerable skills in IB and PE so yhe question that people should be asking is “what can I offer that that a local can’t aside from fluent English and increased salary expectations?”

– Do LatAm Coverage Groups also exist in Europe (London/Frankfurt)?
– How are the chances to break in right out of undergraduate?
– How are the hours?
– Any chances to leverage your assignment in such a coverage group for an assignment abroad?

I’m not 100% certain on those questions above but the interviewer (Luis) may drop by later to answer them. My thoughts for now:

Hours should be about the same as IB anywhere; you can get in right out of undergrad but you need a solid connection to the region. You can always move to another group / country after working in a group like this, though some banks make it easier than others.

Q:How are the chances to break in right out of undergraduate?
A: Same as for any other group. Language skills and heritage add points in your favor if you’re applying for a seat in the LatAm IB team.

Q:How are the hours?
A: Same as other groups.

Q: Any chances to leverage your assignment in such a coverage group for an assignment abroad?
A: You sometimes go on trips for due diligence, but you won’t be spending too much time outside of the client’s office or team meetings.

1. In Europe not so much, but they would be based out London where they do exist or a bank’s powerbase, e.g. Zurich for UBS.

2. I’m outside Brazil but what I’ve seen on the PE side is that it’s primarily connections and when that fails, the fund will go to the best schools (and only the best) for people, but they will typically have prior experience.

3. Hours are long but nothing like London

4. Internal transfers, I feel, are always the best way to go. Howver, your bank/funds on the ground presence may limit these chances if you don’t want to go to Brazil.